LONDON – British Prime Minister David Cameron on Thursday urged Europe to sort out its currency crisis, calling on the 17-country eurozone "to make-up or it is looking at a potential break-up."
"Either Europe has a committed, stable, successful eurozone with an effective firewall, well capitalized and regulated banks, a system of fiscal burden sharing, and supportive monetary policy across the Eurozone. Or we are in uncharted territory which carries huge risks for everybody," Cameron said in a speech in Manchester.
Cameron said that if Greece is forced out of the single currency union, the possible collapse of the eurozone poses huge risks to the U.K. economy but he said Britain was prepared to weather the fallout.
"Whichever path is chosen, I am prepared to do whatever is necessary to protect this country and secure our economy and financial system," Cameron said.
The Prime Minister added that the danger for the eurozone laid in its peripheral economies such as Portugal, Spain and Italy and that these "high deficit, low competitiveness countries" in the eurozone need to cut spending, increase revenues and undergo structural reform.
"We all need to address Europe's overall low productivity and lack of economic dynamism, which remains its Achilles heel," Cameron added.
"Most EU member states are becoming less competitive compared to the rest of the world, not more."
Cameron's office said several European leaders were scheduled to hold a video conference later Thursday to discuss plans to boost the continent's meager economic growth.
Cameron, French President Francois Hollande, German Chancellor Angela Merkel, Italian Premier Mario Monti, European Council President Herman van Rompuy and European Commission President Jose Manuel Barroso were all joining the call, Cameron's office said, ahead of the Group of Eight summit which opens Friday in the United States.
In a news conference on Wednesday, Bank of England Governor Mervyn King warned there would be no trouble-free outcome to the euro crisis, whether it stays together or fractures.
"Whatever happens, there are major problems ahead; there are credit losses to be realized, and however they choose a solution here this is going to be a very difficult path to go through because countries like Germany and the Netherlands have yet to face up to their rebalancing which will be required, as well as the rebalancing of counties in the south."
In its quarterly Inflation Report, the Bank of England warned that there was no way to quantify the most extreme possible outcomes in the Eurozone. King said Britain was already was feeling the impact in the form of bank funding costs, asset prices, exchange rates and business and household confidence.
"What is so depressing about it is that this is a re-run of the debates we had about the banking sector in 2007/08," King said
"Back in 2008, the United States, United Kingdom did recapitalize the banking system. It did grip the solvency problem. What we now need is action to grip the solvency problem in Europe. And it's been two years — two and a half years now — in the making, this crisis. I hope the action will be taken."
Alistair Darling, who was in charge of Britain's Treasury in 2008, said the impact could be severe.
"A Greek exit could start a fire that would spread all along the Mediterranean as other countries would come under pressure. The repercussions, particularly in the banking sector, could cripple Europe for years to come," Darling wrote in Thursday's edition of The Scotsman newspaper.
"This is uncharted and highly risky territory," Darling added.
The government's business minister, Vince Cable, cautioned against panic, saying there was no reason why the Greek crisis should spread to other countries.
"We need to get the risks in perspective," Cable said in a BBC radio interview.
"There clearly are risks to the U.K. Greece itself is a small country, it's only 2 percent of the European economy. The risks arise if the crisis were spread to other weaker, countries in southern Europe, but there is no reason why that should happen."